A CIKK MAGYAR NYELVŰ VÁLTOZATA

György Matolcsy, the Minister of Economy confirmed the Prime Minister’s statement before that the time of the private pension funds is coming to an end soon.

According to his announcement, the three-pillar system was a mistake and was proved a failure. The mandatory private pension system cannot be maintained, only the voluntary pension funds can remain.

The Hungarian pension system currently consists of four pillars: the compulsory public, mandatory private pension funds, voluntary pension fund system and retirement accounts.

The state budget absorbs up to 25.5% of the gross salary which originates partly from the payments of the individuals and partly from the employers’ contribution. The revenue of the public fund is fully spent to cover the current pension payments.

The private pension funds emerged in 1998 when the law offered the choice for individuals under the age of 42 years to pay part of their pension contribution to private pension accounts. The membership was mandatory for school-leavers which served as a transitional rule toward a fully private pension system. The current system reports around three million private account holders who pay 8% of their gross salary every month to their own savings account. Since these accounts are private property, the state could not touch and spend these amounts to cover the current pension expenses which means around 2,800 billion HUF accumulated savings over the years.

According to the last amendment of the law, this 8% contribution will be redirected from the private accounts to the public pot for financing current pension payments.  

The next step in the government’s reform plans was to put a hand on these accumulated savings by offering free withdrawal back to the public pension system. It means that the individual who wants to get back to the public system needs to transfer all his savings to the public account where this amount will not registered anymore on individual account thus the public pot swallow it whole.

The third pillar of the system is the voluntary pension fund, which is in place since 1993 and is completely voluntary contribution. The State to support such a form for future savings, offered initially direct refundable tax benefit which was modified to a kind of tax credit in 2007. This contribution is also very popular amongst employers since it serves as a fringe benefit supported by tax benefits for the account holders.

The forth pillar is the pension savings account which is in function since 2006, and is similar to the third pillar, in a way that it is also supported by tax benefits. Advantage of the voluntary account over the third pillar is that the account holder is free to determine his portfolio of his accounts.

The current situation shows not even slow movement toward a change, started with the immediate redirection of pension fund contributions from 1^st of November till at least December 2011.  And then we’ll see how the government intends to take over higher power by legislative amendments.

However, it now seems that the story does not stop the free opportunity for withdrawal, and that there are further plans in the hat. It was also proven by another amendment plan submitted by the government lately to increase the current 9.5% contribution rate to 10%.  

And maybe it does not sound strange after all, if we feel a little bitterness after the positive changes in personal income tax regulation which offered an estimated average of 1.3% tax savings which suddenly decreased to 0.5%. And we’re not yet at the end of the legislative amendments.

A CIKK MAGYAR NYELVŰ VÁLTOZATA